Optimal Product Variety, Scale Effects and Growth
Henri de Groot () and
No 1997-54, Discussion Paper from Tilburg University, Center for Economic Research
We analyze the social optimality of growth and product variety in a model of endogenous growth. The model contains two sectors, one assembly sector producing a homogenous consumption good, and one intermediate goods sector producing a differentiated input used in the assembly sector. Growth results from R&D performed by firms in the intermediate goods sector aimed at quality improvement. We disentangle three effects associated with increased variety, namely (i) a productivity effect, (ii) a business stealing effect, and (iii) a growth effect. The market provides too little variety and suboptimally high growth if the productivity effect of variety is large relative to the market power of intermediate goods producers. If varieties are not productive, the market provides too low a rate of growth, whereas variety may be too low as well.
Keywords: endogenous growth; monopolistic competition; returns to variety; returns to scale; social welfare (search for similar items in EconPapers)
JEL-codes: D43 D60 O41 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:tiu:tiucen:6b2a30b0-412c-49f1-bd80-f1af0ee662c8
Access Statistics for this paper
More papers in Discussion Paper from Tilburg University, Center for Economic Research
Bibliographic data for series maintained by Richard Broekman ().